THE IMPACT OF RAW MATERIALS

Skyrocketing raw material prices affect the entire value chain in the automotive industry, from suppliers to automakers to consumers.The challenge for automakers, like for their suppliers, is to minimize the negative impact of these prices on their margins and their growth,while seeking solutions to share the burden equitably among all players in the chain. The raw materials theme was omnipresent at the Annual General Meetings and press conferences hosted by major automakers in recent months. Here are a few extracts from the comments of four top OEM executives:

Carlos GHOSN (President & CEO Renault and Nissan)

Anticipating high raw material costs

"We anticipate high energy costs, high raw materials costs, rising interest rates and brutal competition (over the next few years). In short, the environment will not be favorable... Due to the competitiveness of the industry,automakers are practically unable to increase their prices and pass on a small share of the costs to the consumers, which does not augur well for their profitability."

Rick WAGONER (Chairman & CEO General Motors)

These are huge reductions

"We expect to cut $7 billion in structural costs in North America by the end of this year. These are huge reductions, for GM or any corporation... We are also pursuing our plans to address the other major elements of our cost structure. expecially material costs and warranty expenses... Rising prices for raw materials will make it difficult to achieve our $1 billion target cost reduction this year... but material costs remain a very important focus of our tumaround plan, and we are continuing to pursue them aggressively."

Jean-Martin FOLZ (Chairman of the managing board,PSA)

A strong pressure on prices

"The evolution of raw material prices for steel and plastics since the beginning of the year is in line with our forecasts. But for non-ferrous metals liek aluminum, plastinum and rhodium, we are being subjected to an extremely strong pressure on prices - much higher than we expected. It is too soon, however, to sya whether this trend will last."

Helmut PANKE

Former Chairman of the management board, BMW

Efficiency Improvements

"We expect earnings to increase in 2006... In terms of operating results, the current year will be the best year in the company's history to date... Adverse currency effects and high raw material prices in the first three months continued to have a negative impact on earnings; these adverse factors were compensated, however, to a large degree by ongoing efficiency improvements."